It is critical to protect your personal assets in business, particularly when you are facing a lawsuit. A lawsuit will be bad enough for your business, but you do not want it destroying your personal property, as well. Below, our Houston business law attorney outlines some of the best ways to protect your personal assets in the event of a business lawsuit.

Use Proper Business Entities

Using the right business entity is critical for protecting your personal property in the event of a business lawsuit. To give yourself peace of mind and a sense of security, you should consider all possible options before making a final decision, from limited partnerships to corporations to LLCs. Do not unnecessarily make yourself vulnerable. By establishing the proper business entity, you will have legal protection in the event of litigation or a business dispute. The different business entities and the protection they do or do not provide are as follows:

• Sole proprietorships: As a sole proprietor, you and your personal assets have no protection in the event of a business lawsuit. One mistake can jeopardize your personal assets, as well as your business’ profits and income.
• General partnerships: A business partnership can be profitable for all parties, but it can also come with some risks. If your business is sued, you and your partner could be held jointly liable, so it is important to choose partners carefully.
• Limited partnerships: A limited partnership will allow you to enjoy the benefits of being an entrepreneur without exposing yourself to the risks associated with it. When you structure your business as a limited partnership, any lawsuits filed against the business do not extend to any assets outside of it. 
• Corporations: Establishing a corporation is a great way to protect your personal assets in the event of a business lawsuit. Generally speaking, your personal assets are not vulnerable to a business lawsuit unless fraud is involved.
• Limited Liability Companies: LLCs offer great asset protection, as well as flexible taxation options. Owners of an LLC can protect their business from creditors, who would only be awarded a membership interest without gaining control or access over the assets of the company.

Insurance

Certain professions, such as doctors, financial advisors, and real estate agents, are at particular risk of having a lawsuit filed against them. Insurance is very valuable when trying to protect your personal assets, so it is critical to ensure that coverage is sufficient and that it remains current. Sometimes, investing in extra coverage can be the difference between staying afloat or facing financial ruin during a lawsuit. The different types of insurance businesses may need are as follows:

• Homeowners insurance
• Commercial liability insurance
• Worker’s compensation insurance
• Auto insurance
• Umbrella coverage
• Long-term care insurance

Utilize Retirement Accounts to Protect Assets

Under federal law, retirement accounts offer a great deal of asset protection. Retirement plans that are ERISA-qualified have unlimited asset protection. It is critical to consult with a Texas business law attorney who knows the law and who can help determine whether creditors can choose between the federal and state exemption amounts.

Titling

You can protect property that is co-owned by looking at the titling options that are available. Tenancy by the entirety is an agreement between married couples that is legally binding and that protects the primary residence from a spouse’s creditors. This option does not always apply to investment properties, but there may be other forms of protection, such as tenants in common or joint tenancy, which can provide protection in the event the owner of the property passes away. To fully understand what title you need for your situation and to secure maximum asset protection, it is important to consult a lawyer who can help with these options.

Transfer Ownership to Family Members

Maintaining control of your assets is critical to ensure your financial security. By creating an irrevocable trust, you can place property into the trust, which protects it from creditor claims while also providing an inheritance or income stream for your family members and other loved ones in the future. This is only a viable option if you have sufficient funds, and the transfer of ownership will not leave you insolvent. Some of the most common types of trusts used to protect assets from lawsuits are as follows:

• Domestic asset protection trust: This type of trust exists solely for the benefit of the person who created the trust. A domestic asset protection trust allows the creator to keep a certain degree of interest in the property in the trust. Unlike in other states, though, a domestic asset protection trust does not protect the creator if they are also the beneficiary of the trust.
• Lifetime qualified terminable interest trust: A lifetime qualified terminable interest trust is for the benefit of the spouse, and they utilize the gift tax marital deduction to reduce overall taxes. This type of trust can also use the federal estate tax exemption for the less wealthy spouse and provide a lifetime of asset protection for the benefit of the wealthier spouse.
• Medicaid planning trust: Through a Medicaid planning trust, a person can qualify for Medicaid and still maintain an income for the spouse who does not apply. When assets are transferred into these trusts, they can pass to heirs who are protected from the government’s estate recovery, which would require the Medicaid assets to be paid back during the lifetime of the creator.
• Spousal lifetime access trust: A spousal lifetime access trust is created for the benefit of a spouse and uses the lifetime gift tax exemption as well as the annual exclusion gifts.

Our Business Law Attorney in Houston Can Help Protect Your Assets

As a business owner, it is important that you not only protect your company, but your personal property, as well. At Integrity Law Group, PLLC, our Houston business law attorney can advise on your case and suggest the best asset protection tools to use. Call us now at (832) 280-8874 or contact us online to schedule a consultation and to learn more.

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